Investor Relations

[ Financial Results for Fiscal 2016 Performance Briefing ]Q&A

Q1. Could you please explain the factors behind the projected change in operating income from ¥93.4 billion in the year ended March 2016 to ¥74.0 billion in the year ending March 2017?
A1. We are assuming an exchange rate of around ¥110 to the U.S. dollar for the year ending March 31, 2017, versus an average rate of ¥120 for the year ended March 31, 2016. In terms of our exchange rate sensitivity, for every change of ¥1 in the yen-U.S. dollar exchange rate, there will be an impact of around ¥1.4 billion on operating income. Therefore, we anticipate a negative impact of around ¥14.0 billion from the change in our exchange rate assumption. Another factor is the projected decline in operating income in the Magnetic Application Products segment from the year ended March 2016.
Q2. What factors are behind the falling sales prices?
A2. There is basically no major change in terms of the trend in falling sales prices to date. Accordingly, we are forecasting a sales price reduction of around 5% year on year.
Q3. Am I correct in understanding that the projected decline in overall earnings will largely track the decline in HDD heads, while sales and earnings growth will be maintained in passive components and rechargeable batteries, despite the yen appreciating ¥10 against the U.S. dollar?
A3. That is correct. Roughly speaking, the decline in HDD head earnings will be covered by earnings growth in rechargeable batteries and passive components. Based on this, we are forecasting operating income of ¥74.0 billion for the fiscal year ending March 2017.
Q4. Do the latest forecasts you have announced include the portion of business that will be carved out to Qualcomm?
A4. The latest full-year forecasts we have announced do not include any one-time earnings related to the transfer of business to Qualcomm. The forecasts for sales and earnings we have announced through the fourth quarter are stated on the same basis as before.
Q5. You have increased your capital expenditure projection considerably for the year ending March 2017. Could you please explain this increase in a little more detail?
A5. The capital expenditure projection is around ¥80.0 billion higher than the amount we initially announced for the three-year period of the new Medium-term Plan. Around half of this capital expenditure is for investment in high-frequency components. We are proceeding under the assumption that the portion of capital expenditures incurred after the announcement on the establishment of the joint venture will be returned to us as part of payment of final consideration for the transfer of the high-frequency components business. However, since those capital expenditures must still be accounted for as TDK’s investment at present, they are included in our capital expenditure projection. We additionally incorporated the remaining portion of the increase in capital expenditures into our investment plan in order to accelerate future growth in the three fields positioned as strategic growth products: (1) sensors and actuators, (2) energy unit, and (3) next-generation electronic components. We have also incorporated additional investment in existing products, notably growth businesses such as rechargeable batteries. That is the breakdown of the increase in the capital expenditure projection.
Q6. Do you expect volume in the smartphone market as a whole to increase in the year ending March 2017, compared to the previous fiscal? Could you also please comment on the outlook for the tablet market?
A6. A6: We expect the market volume of smartphones to increase only slightly this year. The Chinese market is already approaching saturation, and obviously the markets of developed countries are completed saturated. 4G technology will finally be rolled out in India. We believe that one point to watch closely will be what kinds of smartphones will emerge. Although the overall market volume is unlikely to increase significantly, we believe the emergence of carrier aggregation, 5G and other advances will ultimately lead to an increase in the number of electronic components used in smartphones.
Conditions in the tablet market are not very favorable. In the future, we believe that tablets will start to become indistinguishable from slim PCs and other such devices. Because these applications have thin profiles, demand will also emerge for thin rechargeable batteries. These rechargeable batteries will be larger than those for smartphones. As a company, TDK would like to expand sales of rechargeable batteries for use in these applications.
Q7. The long-term outlook for the HDD market is shown on page 19 of the presentation materials. There seems to be only a modest decrease in market volume around 2020, compared with the preceding two years. Could you please explain why this is the case?
A7. Although we expect the HDD market for PCs to continue to contract, we have factored in a slight increase in PC replacement demand owing to the expiration of support for Windows 7 around 2020. In the HDD market, we will continue to closely monitor trends in PCs and data centers.
Q8. What is your outlook for HDD head shipment volume in the first quarter?
A8. We believe that HDD head shipment volume will increase by around 10% compared with shipment volume in the fourth quarter.
Q9. In the HDD head market, demand is forecast to decrease slightly in the year ending March 2017 based on the graph on page 19 of the presentation materials. By how much do you think demand will actually decrease? Could you please go over TDK’s actual market share and the projection for HDD head demand in the year ending March 2017, as well as unit prices?
A9. In the HDD head market, we are forecasting HDD head demand of 1,416 million units in the year ending March 2017. Our actual market share in the year ended March 2016 was 23%. In the year ending March 2017, we have developed forecasts based on the assumption that our market share will decline by around one percentage point. Looking at unit prices, we are assuming that unit prices for 2.5-inch, 500 GB HDD heads and 3.5-inch, 1 TB HDD heads, which have TDK’s highest shipment volumes, will decline by only around 2% on an annual basis. Meanwhile, near-line 6 TB and 8 TB HDD heads, among certain other models, are products that have just recently been launched and offer prospects for market growth in the future. Therefore, on an annual basis, we are expecting a double-digit percentage point decline in these products.
Q10. Can I assume that you are expecting TDK’s HDD head shipments to decrease by nearly 10% or so?
A10. Yes, your assumption is correct.
Q11. The consolidation of front-end processing plants is shown on page 20 of the presentation materials. Do your forecasts for the year ending March 2017 include the expenses related to this consolidation?
A11. We have not factored these expenses into our forecasts for the year ending March 2017.